There are only four countries that really matter in the world of soybean exporters, Brazil, the United States, Argentina, and Paraguay. Brazil exports almost 54% of all soybeans exported from those four countries, and they’ve basically run out of beans to sell.
Brazil is the world’s leading producer and exporter of soybeans, but rising domestic usage and record sales to China have drained supplies. The government has announced the suspension of import duties in an attempt to encourage imports and suppress rampant domestic food inflation.
This is really big news in the world of grains, and it may soon be big news to everyone on the planet if the price of soybeans outside of Brazil mimics the price of domestic Brazilian soybeans to what the USDA claims are now record high price levels.
Much of the problem has been self inflicted: private analysts estimate that Brazil has sold too many soybeans for export, and Brazil has strict rules regarding both the sourcing and types of soybeans it will allow to be imported. Prior to the removal of import duties, the only countries from which Brazil could import soybeans without a tariff penalty were the other members of the Mercosur regional trade agreement.
The U.S. is the world’s second largest soybean exporting country, and the only major soybean exporter outside of the Mercosur pact, which means the removal of import duties should allow imports from the U.S. But Brazil can’t import most genetically modified soybeans, which means it can’t easily turn to the U.S. to fulfill its soybean importing needs. Now Brazil finds itself in a squeeze when it comes to soybean importing sources.
This is creating more of a soybean shortage in Brazil than might be expected given that global soybean ending stocks are above their ten year average, and global production of soybeans is projected to be record high this crop year. But even with high levels of production global usage is outstripping supply; global soybean inventories are expected to fall in the 2020/21 growing season, marking a third consecutive year of declining global soybean inventories.
China has played a big part in the soybean conundrum, and what it does next will likely determine the global price of soybeans for the foreseeable future. Most of Brazil’s soybean exports have been committed to China. Now that Brazil has, in effect, oversold its capacity, China must turn to the United States, Argentina, and Paraguay for its remaining importing needs. Now, in a bizzare agricultural irony, China will be competing with its main supplier of soybeans for, well, soybeans. This is an unusual turn of events that will directly benefit U.S. farmers.
The USDA projects China will need to import a record 100 million metric tons of soybeans this year. China is currently on a record pace with its soybean purchases from the United States for the 2020/21 crop year, which is not even two months old. It’s little wonder that soybean prices in the U.S have rallied over 20% since August.
The rest of the crop year, which runs from September 1 – August 31, should be interesting indeed.